Loan-backing Program Suspended By Sba

January 09, 2004|By Chicago Tribune And Staff Reports

The U.S. Small Business Administration has temporarily suspended its flagship loan guarantee program just three months into the fiscal year, citing insufficient funding to meet unprecedented demand for loans.

The agency said thousands of unprocessed loan applications will be returned to lenders and applications already sent to processing centers will be canceled.

In Connecticut, banks that grant SBA-backed loans said the action could disrupt growth in the state if it extends indefinitely.

The SBA's 7(a) loan program backs 40 percent of all long-term lending to the country's small businesses.

The decision to cancel applications will force small-business owners to re-file their applications for consideration under a new $750,000 loan limit instead of the old $2 million limit. The lower loan cap was slated to go into effect Thursday, according to the SBA.

Small-business lenders at Webster Bank in Waterbury -- which last year loaned $12 million under the program -- said they hope the shutdown of the program is brief, as it was in 1997.

``If it extends indefinitely, it would absolutely result in a disruption to our customers,'' said Allan Kauders, a senior vice president at Webster.

That could force small businesses to delay plans for hiring more workers, buying new equipment or adding to their inventories, Kauders said.

Right now, the number of Webster small-business customers affected by the SBA's decision is fewer than a dozen.

At Business Lenders LLC, a Hartford-based non-bank lender that works exclusively with SBA, president Penn Ritter said he could recall a shutdown such as this only once before, and it was brief.

The SBA loan-guarantee program, Ritter said, ``is one of those unsung heroes of lifting the economy through entrepreneurship. . . . It is a quiet, underappreciated, absolutely essential underpinning in the Connecticut economy.''

The Hartford SBA office referred questions Thursday to the SBA headquarters. A spokesman there was unable to give the value of loans the agency backs in Connecticut.

Nationally, the change in limits has led to something akin to a Depression-era run on banks in the past two weeks by those who feared that the caps signaled funding problems at the agency and by those hoping to secure loans larger than $750,000 before the deadline.

SBA spokeswoman Sue Hensley blamed the temporary shutdown of the program on Congress' inability to agree on the fiscal 2004 federal budget, which began in October. Under the continuing resolution that provides funding until a budget is passed, departments and agencies receive only 90 percent of their monthly budget request.

The lending program could resume quickly if Congress and the Office of Management and Budget allow the agency to back an additional $470 million in January loans, she said.